South32 Hillside and Bayside Aluminium: CBAM Liability Analysis

South32 Hillside and Bayside: CBAM Liability Analysis

South32's two Richards Bay aluminium smelters — Hillside and Bayside — are among the largest aluminium production facilities in the world. Their CBAM exposure is substantial, driven primarily by the carbon intensity of Eskom's electricity grid.

Production Profile

Hillside Aluminium (Richards Bay)

• Capacity: ~720,000 tonnes/year
• Technology: Prebaked anode reduction cells
• Electricity source: Eskom grid (long-term supply agreement)
• Electricity consumption: ~14.2 MWh/t aluminium

Bayside Aluminium (Richards Bay)

• Capacity: ~170,000 tonnes/year
• Technology: Prebaked anode reduction cells
• Electricity source: Eskom grid
• Electricity consumption: ~14.0 MWh/t aluminium

Combined capacity: ~890,000 tonnes/year

CBAM Liability Calculation

The CBAM liability depends on two key variables: the volume exported to the EU and the emission methodology used.

Embedded Emissions (Actual, using Eskom grid):

• Scope 2 (electricity): 14.1 MWh/t × 0.95 tCO₂/MWh = 13.4 tCO₂/t
• Scope 1 (anode consumption, process emissions): ~0.5 tCO₂/t
• Total actual: ~13.9 tCO₂/t

EU Default Value (with 10% markup): 12.4 tCO₂/t

Since actual emissions (13.9 tCO₂/t) exceed the default (12.4 tCO₂/t), South32 would pay more using actual emissions than using the default. The default value approach is therefore likely more favourable.

CBAM Liability at €65/tCO₂ (using default 12.4 tCO₂/t):

The Renewable Energy Pathway

South32 has publicly committed to reducing its carbon footprint. For the Richards Bay smelters, the primary lever is securing renewable electricity through PPAs.

Scenario: 500 MW renewable PPA

• Renewable energy supplied: ~4,380 GWh/year
• Grid electricity displaced: ~4,380 GWh/year
• Emission reduction: 4,380 GWh × (0.95 - 0.02) tCO₂/MWh = ~4,073,400 tCO₂/year
• Reduction in Scope 2 per tonne: significant, potentially bringing actual emissions below the EU default

A successful large-scale renewable PPA could transform South32's CBAM position from paying above-default rates to potentially paying below-default rates.

Strategic Implications

South32 faces a strategic choice:

1. Accept CBAM costs as a cost of doing business in EU markets and pass them on to customers
2. Invest in renewable energy to reduce actual emissions below the EU default
3. Redirect EU-bound production to non-CBAM markets (Asia, Middle East)
4. Leverage Mozal (Mozambique, hydropower-based) for EU customers where possible

The optimal strategy depends on EU market pricing, renewable energy PPA costs, and the trajectory of EU ETS prices.